Bonded and Insured I.R.C. 1031 Qualified Intermediary

Exchange Basics

Under Section 1031 of the United States Internal Revenue Code, the exchange of certain types of property may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due. To qualify for a 1031 Exchange the properties exchanged must be held for productive use in a trade or business or for investment. Stocks, bonds, and other properties are listed as expressly excluded by Section 1031 of the Code, though securitized properties are not excluded. The properties exchanged must be of "like kind", i.e., of the same nature or character, even if they differ in grade or quality. Personal properties of a like class are like-kind properties.

There are, of course, very specific requirements that you must follow so that your sale transaction will qualify for 1031 Tax Deferred Exchange treatment under Section 1031 of the Internal Revenue Code.

I.R.C. 1031 Section Background

Under the Internal Revenue Code Section 1031, real estate and personal property owners with business use or investment assets are allowed to exchange into like kind assets.

Taxes which would otherwise have been due fro the sale, are deferred. Real property assets are considered like-kind to other property assets.

Personal property assets such as trucks, trailers, heavy equipment, aircraft and other assets may also be exchanged under Section for the like-kind assets.

Business / Investment

You must acquire one or more like-kind replacement properties that are equal to or greater in net purchase value that the net sales value of the relinquished property you sold.

You must reinvest all of your net cash proceeds from he sale of the relinquished property.

And, you must replace the debt that was paid off on the sale of the relinquished property with an equal amount of debt on the like kind replacement property You can always add more cash into your purchase but you can not pull any cash out of the sale.

Qualified Intermediary

A Qualified Intermediary, also known as a facilitator or exchange accommodator, facilitates the 1031 exchange.

They must be independent individual or organization that does not have a business or family relationship with the exchanger, prior to the transaction.

The Qualified Intermediary receives the funds from the original sale, holds the funds until they are required and distributes the funds to the closing agent.